When you hear tax, chances are you think of the IRS. If April 15 is coming, you might get a headache. You might also think about sales tax and how those few extra added percent will up the cost of a shopping trip. Income tax, the IRS and sales tax are all readily available. We hear about them all the time. But they aren’t the only taxes out there and often it’s the sometimes forgotten taxes that get people in trouble.
In our practice, we’ve seen that the tax the bites people the most because they didn’t know about it, is use tax. It is essentially a filter to pick up revenue that sales tax otherwise would have missed. Unlike sales tax, which though paid by the purchaser is collected by the seller at the time of sale and remitted to the state, it is the purchaser’s (the user’s) responsibility to report and pay the use tax they owe.
It works like this. Illinois’s sales tax rate is 6.75%. On any goods or services that you use within Illinois and for which you pay less than Illinois’s sales tax rate, you owe the difference to the state in use tax. So if you buy something online sales tax free, you owe the full 6.75% to Illinois. If you bought something for 3% sales tax in another state and use it in Illinois, you owe 3.75% to Illinois. This of course is only assuming the base Illinois sales tax rate. Food and certain medicines are eligible for a reduced rate, while other products like cars receive additional taxes.
Use tax gets people in trouble both because it isn’t well known but also because its application can get confusing. The issue of just what constitutes using something within the state of Illinois can be a point of contention between taxpayers and the Illinois Department of Revenue.
Horowitz Law Offices has represented numerous taxpayers before the Illinois Department of Revenue, the IRS and the Chicago Board of Finance for all manner of tax matters and controversies. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org